FOODSERVICE

Review of the Russian Market of Ice Cream

Ice cream is a frozen dessert mainly produced from dairy goods (milk, cream, butter), with added sugar, flavor substances and aroma compounds as well as other fillers (berries, fruit, nuts, chocolate, cookies etc.).

Among the wide range of products present in the Russian ice cream market, ice cream in cake cones is traditionally the most popular variety, accounting for around a third of total consumption.

Speaking of consumer preferences in terms of ice cream flavors, the classic flavors are most demanded, namely vanilla, crème brûlée, chocolate and pistachio. These are followed by berry and fruit flavors.

Trends of the recent years include growing competition, which served as an impetus for a start of inner market transformation – an introduction of new flavor solutions and ice cream design intended to spark interest in the products and surprise the consumer. For instance, a number of novelties can be found in stores nowadays, such as black ice cream, ice cream with flavors like bacon, cheese, beer, rum or chili pepper, and ice cream with unusual flavor combinations (e.g. salted caramel, or strawberry & basil).

Following the fashion for health and wellness as well as healthy eating, manufacturers have been introducing ice cream with functional additives, eco ice cream, ‘sports’ ice cream (with proteins and L-carnitine), low-calorie ice cream with lowered sugar and fat content, lactose-free ice cream, frozen yogurt, and ice cream from soy, coconut or rice milk. However, said segment is not very significant just yet – most consumers still prefer the classics, produced according to traditional technologies and recipes.

CONSUMPTION

Demand for ice cream in Russia is highly dependent on the seasonal factor: demand typically increases in the summer, although consumption volumes may be corrected by weather conditions. In the summer months, growth in sales in the segment of ‘impulse’ ice cream is particularly noticeable – the segment includes single serving ice cream varieties (cones and plastic cups, ice cream on a stick and the like). Such ice cream is mainly sold in kiosks and small stores. In autumn and winter, these is an increase in demand for the so-called ‘home’ and ‘family’ ice cream solutions in tubs and other large packages, which are primarily distributed through large retail chains.

The volume of consumption in the Russian market of ice cream in 2017 amounted to about 369 thousand tonnes, which is 7.5% lower than the level of the previous year. Said reduction in consumption was caused by the weather factor: the cold and rainy weather in the spring-summer season in 2017 had a negative impact on the level of consumer demand.

Nevertheless, market volume in monetary terms in the time period in question has been demonstrating stable growth, which has to do with constantly increasing prices for said products. In 2017, the volume of the ice cream market in the Russian Federation in value terms reached around 65.5 billion rubles (+11.7% to 2016).

The bulk of products present in the market are made up of ice cream manufactured in Russia – its share in the market has been remaining at around 97% for years. This is due to low competitiveness of imported goods, caused by transportation costs leading to prices being raised significantly. Apart from that, a number of major foreign players which supply their products to the Russian market (“Unilever”, “Nestlé”, “Baskin Robbins”) have local production facilities in the Russian Federation.

Therefore, imported ice cream mainly belongs to the premium segment (“Mövenpick”, “Häagen-Dazs” and other brands). In 2017, the volume of ice cream imports to the Russian market amounted to 11 thousand tonnes. The dynamics of imported ice cream supplies are rather smooth; changes in volumes of supplies to Russia fully depend on consumption seasonality: in the spring-summer season imports increase, whereas in the cold season they decrease.

The main suppliers of ice cream to the Russian Federation are Belarus, France, Ukraine and Switzerland. In 2017, Belarus and France accounted for around 52% of the total volume of imports in physical terms.

It should be noted that in early 2018, the Finnish concern “Valio” relaunched its ice cream production, which was previously stopped in 2004. Products by the company have been supplied to the Russian market since February 2018 and are presented in the premium segment. At the moment “Valio” ice cream is sold in stores in Moscow, Saint Petersburg and Belgorod.

Only around 5% of all ice cream goods produced in Russia end up being exported. Russian ice cream is mainly supplied to Kazakhstan, which received around 37% of the total volume of exports in physical terms in 2017, as well as Ukraine (14%), Mongolia and China (11% each).

PRODUCTION

Ice cream output volumes in the Russian Federation have been showing positive dynamics in 2013–2016. In 2016, production volume equaled 406.6 thousand tonnes, exceeding the level of the previous year by 8.5%. In 2017, the output volume declined by 7.3%, amounting to 377 thousand tonnes; this was caused by the cold and rainy summer in the central part of Russia, which led to reduced consumer demand.

The Central, Volga and Siberian Federal Districts are leading in ice cream production in Russia. In 2017, these three regions accounted for 65% total in the volume of all ice cream produced in the country.

Ice cream producer prices in the Russian Federation have been growing by 17% on average every year since 2013. In 2017, the average price per tonne of ice cream equaled 177.5 thousand rubles, which is 21% higher than the indicator for 2016. In the first 3 months of 2018, growth continued – in January–March 2018, prices increased by 5.3% against the level of the similar period in 2017.

Along with manufacturer prices, retail prices have been demonstrating positive dynamics since 2013, with annual growth rates of around 13% on average. In 2017, the average price per kilogram of ice cream equaled 386.9 rubles. In January–March 2018, an increase by 7.6% to the similar period of the previous year was recorded.

The main factor for price growth is an increase in raw material costs – dairy products and other ingredients (berries and fruit, aroma compounds, various fillings and toppings etc.).

Traditionally, 3 price segments can be distinguished in the Russian market of ice cream: economy, medium and premium. Market participants are currently noting an increase in consumption of economy ice cream, which occupies slightly less than half of the Russian market through an expanding product range as well as relatively low prices. Said trend is also connected to a lack of current growth in real household incomes in the country. The segment is primarily represented by ice cream cones and cakes, ice cream on a stick and a number of other varieties; the category also includes ice pops. A slight reduction of the mid-price segment has been taking place – its share in the market is around 30%.

The segment of premium ice cream includes both imported goods and products by foreign companies that have their own production sites in the Russian Federation and supply ice cream to the domestic market. Products in the segment are represented by such brands as “Mövenpick”, “Häagen-Dazs”, “Carte D’Or”, “Mars”, and “Bounty”.

FORECAST

It is expected that the ice cream market in the Russian Federation will be actively developing in the medium term. The volume of consumption will be growing by 2.6–3% on average and may reach around 453.3 thousand tonnes by 2025.

An increase in real household incomes may become the main driver of growth and is expected to amount to +1.1–2.3% per year on average in 2018–2020, according to the baseline scenario by the Ministry of Economic Development of the Russian Federation. In addition, structural shifts will be taking place in the market, connected with manufacturers penetrating new market segments. Further prospects of the main market participants will largely depend upon the effectiveness of their marketing policies and product range expansion, including the introduction of new flavors, design and ice cream packaging.